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If no lifetime CEO, why not no lifetime directors?

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If no lifetime CEO, why not no lifetime directors?

It is my understanding from reading previous posts that you think it is good governance policy to have board members for life and that terms of office are not necessarily, per se, good governance practice. If I got that right (and I may have misunderstood you), why in your answer to last week’s question, do you think …"It is highly unusual, and definitely not a good idea, to have a chief executive for life.”

If you believe that it is not a good idea to have a chief executive for life, why not apply the same principle to members of a board so that they too, do not serve for life so that there is rotation, new blood, new donors, more people who know about the organization, leadership development etc.?

This is a wonderful question and I thank you for the opportunity to try to clarify some very significant concepts.

First, I strongly support terms of service for directors of nonprofit boards, normally two , three or four years, but you are correct that I dislike limits on the number of terms a director may serve. Term limits are arbitrary and cause many organizations to lose some of their best leaders when they could be most helpful. Term limits deprive organizations of institutional memory, change the balance between board and exec, and allow boards to coast to the end of a director’s term limit rather than making a tough decision to ask an unproductive director to resign.  (See Ready Reference Page:  “Term Limits Are For Cowards”) Being against arbitrary term limits is not the same as being in favor of guaranteed directorships for life. When directors are no longer able to contribute, they should no longer serve. Directors should be evaluated and re-elected to new terms only if they can continue to be helpful to the organization.

I make one exception to that principle, however, for the founder (sometimes a group of founders) of an organization.  When you ask my favorite question “whose organization is it?” (See Ready Reference Page:  “The Key Question: Whose Organization Is It?”) , and when you realize that the organization exists and thrives primarily because of the vision, the passion, and the effort of the founder, in my view it makes sense to protect that interest with a guarantee of lifetime tenure as the sole member of the corporation (like sole shareholder of a business), with the power to appoint and remove the directors. (See Ready Reference Page: “Sole Member Bylaws Can Protect Founder of Nonprofit”)

But as I said last week, even with a founder who wants to be the CEO, we do not provide that the sole member will have life tenure as president or CEO.  Being CEO is a very different job than being a director. A director helps set strategic goals and oversees the implementation of policies and programs.  A CEO has to actually run the organization, is the central focus of the organization, and is relentlessly responsible for all of its activities.  The CEO must utilize a variety of hands-on skills not required of a director.  Many of those skills may have to change as the needs of the organization change, particularly if it ramps up to a significantly larger scale of operation.  Being CEO requires a type of physical stamina not required of a director. I want a board that can view the organization from a little distance, evaluate and help the CEO improve performance, and ultimately, if the CEO is not up to the task, remove the CEO and find someone who is.

(I recognize that my sole member founder can ultimately change the board to keep his or her position as CEO, but the founder can’t act arbitrarily without losing the board and undermining the progress of the organization.  In balancing the risk of the founder hanging on too long against the risk of a much less invested board forcing the founder out, I choose to protect the founder and let the others do their own thing if they so desire.)

Coming back to your question, a board of directors plays a very different role than the CEO.  The best boards are an assembled group, intentionally constructed to represent the diversity of experience, skills, access, wisdom, and commitment necessary to advance the purpose of the organization. Any single member of the board is a part of that mosaic, not solely responsible for the success of the organization.  They bring their individual perspectives to help the group as a whole make the best decisions possible for the organization.

I have found that in today’s fast changing society, there is a natural rotation as directors change jobs, move, or get torn by other demands on their lives.  There is a natural inclusion of new blood, new donors, new supporters, and new leaders.  Where directors are not contributing, the board has many tools to remove the “dead wood” and hasten that rotation.  I don’t want to guarantee life tenure for all directors. But I want them to be able to continue to serve if they are willing and able to fulfill a niche in the mosaic and those who select the directors want to re-elect them to the board.

Wednesday, September 12, 2012

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Good information and much appreciated!

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